5 Tax Tips for Renting Out Your Vacation Home

Smiling man and woman holding hands while arriving at vacation rental.

(Image credit: Getty Images)

last updated 7 February 2024

You'll want to consider these tax tips for renting out your vacation home whether you are hosting every weekend or just a few times a year. Renting your getaway occasionally can be a great strategy to offset some of your expenses. That's fine, as long as you don't set off any alarms with the IRS. You may also have to consider state and local taxes, depending on the type of rental you offer.

So, whether you are signing up with Airbnb, VRBO, HomeAway or a private listing, read on to save money and headaches at tax time.

Tax tips for renting out your vacation home

1. If you rent out your house for 14 days or fewer during the year, you don't have to report the rental income on your tax return. And there's no limit to how much you can charge. The house is considered a personal residence so you deduct mortgage interest and property taxes just as you do for your primary home. However, you cannot deduct any rental expenses if you stay within the 14-day limit.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

For more on the tax benefits and considerations involving tax-free rental income, see Kiplnger's report: Tax-Free Rental Income: IRS Legal Rules to Know.

2. If you rent out your house for more than 14 days, you become a landlord in the eyes of the IRS. That means you have to report your rental income. But it also means you can deduct rental expenses. It can get complicated because you need to allocate costs between the time the property is used for personal purposes and the time it is rented.

Your rental property's expenses, such as repairs, maintenance, property taxes, and mortgage interest, can be deducted from the rental income, which can lower your tax liability. Most landlords will need to report their rental income and expenses on Form 1040 or 1040-SR, Schedule E, Part I.

Also, keep in mind that some states and localities may charge an additional tax on short-term rentals like Airbnb or VRBO. As Kiplinger has reported, proposed legislation in California, for example, would levy a 15% tax on such rentals as a way to help pay for affordable housing.

3. If you use the place for more than 14 days or more than 10% of the number of days it is rented — whichever is greater — it is considered a personal residence. You can deduct rental expenses up to the level of rental income. But you can't deduct losses.

4. The definition of "personal use" days is fairly broad. They may include any days you or a family member use the house (even if the family member is paying rent). Personal days also include days on which you have donated use of the house — say, to a charity auction — or have rented it out for less than fair market value.

5. If you limit your personal use to 14 days or 10% of the time the vacation home is rented, it is considered a business. You can deduct expenses and, depending on your income, you may be able to deduct up to $25,000 in losses each year. That's why many vacation homeowners hold down leisure use and spend lots of time "maintaining" the property; fix-up days don't count as personal use.

TOPICS

Ellen writes and edits retirement stories. She joined Kiplinger in 2021 as an investment and personal finance writer, focusing on retirement, credit cards and related topics. She worked in the mutual fund industry for 15 years as a manager and sustainability analyst at Calvert Investments. She earned a master’s from U.C. Berkeley in international relations and Latin America and a B.A. from Haverford College.